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An overview of the Budget reforms

The government has published its response to the Freedom and Choice in Pensions consultation, which introduced the revolutionary reforms announced in George Osborne's March 2014 Budget.

New tax system

From April 2015, everyone with a defined contribution pension will be entitled to flexibility, regardless of their total pension wealth. This means that individuals aged 55 and above will have the freedom to make decisions that suit their circumstances. If they wish, they can take their total pension savings as a lump sum, with 75% of the fund being subject to income tax. Individuals who take the advantage of this flexibility will be limited to an annual contribution of £10,000.

Furthermore, the government stated that 55% tax on death in retirement is far too high. Any changes to this legislation will be announced in the Autumn Statement.

The government also has announced that minimum pension age will increase from 55 to 57 by 2028 as the state pension age rises to 67. The minimum pension age will continue to be always 10 years below state pension age. This is due to increase in line with life expectancy rises.

In regards to private pensions, according to the response of the consultation individuals will be able to withdraw from their pot from 55 to 57 by 2028.

Defined benefits contribution schemes

Following the Budget announcements, the government has confirmed that they will continue to allow transfers from private sector defined benefit contribution schemes, excluding pensions already in payment that are subject to additional and important safeguards. However, unfunded public sector scheme transfers may well be banned.

Guaranteed guidance

It has been announced that every individual with a defined contribution scheme will have the right to free and impartial advice at retirement. However, pension providers and schemes will be under a duty to ensure that its clients are aware of their right to impartial guidance.

The service will be funded by an industry-wide levy, with the overall amount yet to be set.